MBA FPX 5910 Assessment 4

Executive Summary

Tesla Motors is a luxury electric automobile company that began retailing vehicles in 2008. Tesla’s iconic models, such as the Tesla Roadster, Model S, and Model X, have transformed the auto market, offering an all-electric option that resonates with high-end customers. Founded in California, Tesla has established operations around the world. In January 2019, the company started building Gigafactory Shanghai to support the increasing need for affordable versions of the Model 3 in the market (Tesla, 2019). Tesla has attained a competitive market edge internationally through differentiated and unmatched products.

The company has, however, been facing critical quality and delivery issues, which have eroded its once-sizable market share. Management has prioritized profit margins over delivery, performance, and quality of the product, scaring away a long-standing customer base. To compensate for these shortfalls, the management at Tesla must institute strategies to improve international coordination between teams and regain the superior quality and performance that customers expect from Tesla. In addition, Tesla needs to create contingency plans so that it can enhance its other product lines in case it loses market leadership in the electric vehicle (EV) market. 

MBA FPX 5910 Assessment 4:Introduction

This essay aims to discuss how Tesla, Inc. has remained at the forefront of the EV industry even with the tremendous amount of scrutiny it is subject to worldwide. The essay will also discuss if Tesla can continue its operations using other products in case its dominance of the EV market is lost (Barcom, 2019).

Tesla’s exclusive maintenance of its EVs means that failure to adapt would harm both the company and its customers. This proposal, including strategies, scope of information, and action plans, provides a means of leveraging Tesla’s independent product lines to sustain market share and long-term viability. These strategies and plans are from the concepts and methods learned in this MBA course and will be shared through in-depth analysis of Tesla’s offerings and survival factors. 

Background and Current State

Tesla Motors is an upscale electric automobile manufacturer that has been selling vehicles since 2008. Launching the Tesla Roadster, Model S, and Model X has revolutionized the automotive market.

The California-based firm has operations globally.

Tesla began construction of Gigafactory Shanghai in January 2019 with the aim to increase production and meet demand for a lower-cost Model 3 variant in the local market (Tesla, 2019).

Tesla has been faced with a plethora of issues regarding the quality and delivery of its innovative offerings despite having made them available, causing the company’s large share of erstwhile commanding market space to erode. Tesla management has valued profit margins over product performance and quality, which are fundamental to its market segment. To regain its footing, Tesla must enhance team collaboration across the world and reclaim the high standards that first set it apart from others.  

Tesla’s Ethical Issues in the EV Market

Tesla’s Ethical Issues in the EV Market Tesla, Inc. has various ethical issues within the electric vehicle (EV) sector, but the most crucial are trust, quality, and leadership.

Trust was a major issue when Tesla sold used registered vehicles to German firms at the cost of eligibility for electric vehicle tax incentives.

NextMove, an electric vehicle rental company, ordered 100 cars from Tesla but canceled most of the order after receiving used vehicles with some defects.

This caused a violation of trust, since customers desire new, quality products from a brand like Tesla (Hyatt, 2019).

Despite Tesla’s claims that the problem was caused by a “temporary system problem,” the reputation of the company had already been tainted (Hyatt, 2019). Quality problems also contribute to the ethical dilemmas of Tesla. Employees in the company’s “tent” factory complained that they were forced to sacrifice quality to meet aggressive Model 3 production targets (Kolodny, 2019). The shortcuts resulted in poor-quality products, with customers reporting shortcomings such as condensation in headlights and paint defects (Hyatt, 2019). The compromise on quality not only diminished the confidence of customers but also lessened Tesla’s market share globally.

A company’s management is expected to maintain product quality, and in Tesla’s case, it seems that making profits matters more than manufacturing quality cars. Tesla’s management, particularly CEO Elon Musk, has also contributed to the company’s ethical challenges. Musk’s behavior, including his tweets and lack of transparency about quality issues, has been a source of confusion and doubt among consumers and stakeholders. A great example of this is the Securities and Exchange Commission (SEC) lawsuit over Musk’s proposal of taking Tesla private, something that would have had serious implications on the market (Ferris, 2018). In addition, Tesla’s failure to address reported quality issues further sent customers away, since buyers of new vehicles had an average of 66 problems per 100 cars from January 2018 to September 2019 (Matousek, 2019).

Leadership and Organizational Structure

Tesla’s leadership style has been both a strength and a weakness. The unitary and centralized structure of the Elon Musk-led organization allows for quick decision-making but also limits the ability of international offices to act on local concerns. The limitation on independent decision-making negatively impacts Tesla’s responsiveness in the different regional markets, shaping its overall performance globally (Meyer, 2018).

Despite Musk’s innovative leadership, Tesla’s organizational rigidity and top-down management style limit the ability of teams to work together.

Successful leadership requires teamwork and delegating authority to teams to provide solutions based on the company’s strategic goals (Kunnannatt, 2016).

Tesla’s organizational structure is based on functional teams, whereby workers with the same abilities work together. This approach, however, leads to operational challenges. For example, Tesla’s centralized structure does not grant overseas offices independence to handle problems independently. Such constraints may inhibit innovation and global cooperation among teams, essential for sustainable development of Tesla in the global EV market (Meyer, 2018). The company must shift towards a more globally inclusive and versatile model of leadership that will enable its teams to perform effectively in addressing global challenges and promoting sustainable development.

Strategies for Sustainability and Growth

To maintain its leadership position in the EV market, Tesla must address both the quality and trust issues that have been eroding its reputation.

There are two approaches that can be employed by the company to regain its market share: loss mitigation in the EV market segment and product line diversification. First, Tesla must solve the quality issues on cars already delivered and implement risk management measures to prevent such accidents. For example, Tesla was forced to recall more than 5,000 Model 3 vehicles because of defects; following consumer complaints, they pulled back their endorsement (Olsen, 2019). By solving such problems, Tesla can retain its customers and limit future losses. Apart from improving quality, Tesla should continue diversifying its products.

Tesla has a dominant place in green energy solutions already, with its product lines of battery packs and solar panels. The company’s future depends on diversification, particularly if the EV market declines. Tesla will continue to be profitable and remain pertinent with an ever-changing market if it can expand into other avenues beyond cars (Tesla, n.d.). By focusing on sustainable energy systems, Tesla can become a leader not only in electric vehicles but also in the entire industry of renewable energy solutions.

Tesla’s Investments and Market Strategy

Tesla has made significant investments in battery and charging technology for their electric vehicles, which they have now brought into the commercial and residential sectors, as well as their solar panels.

Solar power, although renewable, has not yet been utilized on a significant scale in the continental United States other than in relatively more recent years. However, Tesla’s gross margins from their solar energy sales have never been big enough by themselves to sustain their company. In order for such an approach to be truly viable, Tesla must capitalize on their strengths. Tesla has a good history in battery technology, which is independently marketable and can be sold in large volumes. On the basis of their eco-friendly projects, Tesla also receives government support, particularly through the Environmental Protection Agency (EPA). Tesla already has a worldwide charging infrastructure in place, which can be used for selling charging time to other customers of different brands. As technology evolves and becomes more affordable, opportunities in the marketplace for Tesla to expand into various markets will continue to grow.

Pros and Cons of Independent (Diversified) Product Lines

There are several advantages and disadvantages of a diversified product line.

Tesla has a diversified product line that can carry the company if they lose some of the electric vehicle (EV) market.

Although their primary product is EVs, Tesla also manufactures powertrain parts and EV batteries.

They also manufacture solar panels and charging equipment. One of the significant advantages of this is that Tesla has combined solar power and other battery research and development, which has allowed them to offer the beginning of a sustainable energy system. This enables homeowners, businesses, and utilities to manage renewable energy generation, storage, and utilization (Tesla.com, n.d.). The disadvantage of producing different product lines is that not all are profitable or generate sufficient revenue individually to make production justifiable without other complementary products. A prime example would be that Tesla’s Powerwall and residential and commercial solar products accounted for merely 7.9% of their Q1 2017 revenue (Tesla, 2017). Moreover, Tesla’s service product line is only for the EV industry as a whole and not in the form of subparts, and this industry lost with a negative margin of 11% (Tesla, 2017).

Recommendations for Tesla’s Strategic Growth

After a detailed external analysis of the EV business that Tesla is engaged in, two key recommendations were presented to help the company address its immediate challenges and stabilize its standing in the EV sector while promoting increased growth in the global sustainable energy business.

The initial suggestion is to reduce losses in the EV market sector, and the second is to enhance the independence of Tesla’s diversified product lines. Tesla, by addressing quality issues in manufacturing and delivery, can increase investor confidence and customer satisfaction. Realigning R&D investments towards repairing vehicles instead of the Autopilot program would reduce monetary losses and respond to ethics concerns surrounding deaths due to autopilot system malfunction. By also offering a very capable, efficient EV with cutting-edge technology at an affordable price, Tesla might regain a lost segment of the market (Barcom, 2019). The second recommendation is to strengthen Tesla’s standalone product lines, notably its battery and solar power technology. As they become more affordable, there is a huge opportunity in the non-automotive segments, particularly where commercial power is more expensive. Focusing on their Powerwall technology and expanding their market coverage will help Tesla diversify their revenue bases and reduce dependence on the car business.

Conclusion

Tesla has a huge and diverse product range that spans different industries of renewable energy.

The largest source of revenue for the company comes from the EV segment, and the sale of cars accounts for 85% of the company’s total revenue (Tesla, 2017).

Despite setbacks, Tesla’s consistent focus on increasing quality and performance, along with rising R&D on battery technology, will ensure their dominance in the EV space and enable them to expand into other segments.

By listening to customers and using strategic frameworks like the AFI strategy framework (Tedder, 2018), Tesla can capitalize on new opportunities and solidify its position as a leader in both the EV industry and sustainable energy.